Entrepeneurs Finished the Falklands’ Story

By Phil Richards

Exploration success in the harsh waters around the Falkland Islands – a self-governing British Overseas Territory disputed by neighboring Argentina – has taken considerable time to achieve, but is now starting to prove to have been worth the wait.

With just 22 wells drilled and seven discoveries made during the latest drilling campaign since early 2010, the Islands’ oil potential has been transformed from the nadir days of the 1998 oil price crash, which saw the likes of Shell, Amerada Hess, Teikoku, Murphy, Fina and Lasmo withdraw from the area after drilling just six holes with various shows but no discoveries.

When the Falkland Islands government launched its first – and to date, only –competitive licensing round in 1995, only the relatively shallow water blocks to the north of the Islands, in less than 500 meters of water, were deemed to be either attractive enough or technically feasible to explore. Shell, Hess and Lasmo, with their associated partners of the time, took the lion’s share of the more attractive acreage, amidst relatively fierce competition for the perceived prized blocks (see figure 1).

Remember, this was in an era when the large and mid-sized companies still engaged in wildcat exploration of frontier areas!

A couple of entrepreneurs, with disparate reasons for having business interests in the Islands, also entered the game at this stage, and with several more like-minded individuals who were to follow them in subsequent years changed the path of exploration in the region and led eventually to the present brink of production that the Islands now anticipate.

Phipps Finds the Potential

Typical of the early entrepreneurs was the late Colin Phipps, a petroleum geologist who had built Clyde Petroleum from a small consulting company in the 1970s to one of the United Kingdom’s largest and most successful independents.

Phipps also was once a Member of the British Parliament, and as a backbench MP in the 1970s had traveled to the Falklands and Argentina on a Parliamentary fact-finding mission, partly to investigate attitudes around what he perceived to be “deeply entrenched and persistent folklore in the Falklands that the Islands are underlain and surrounded by vast accumulations of oil.”

Phipps’ own 1977 geological analysis of the potential was that it was immediately obvious that “there has been remarkably little geological work of any kind carried out in the Islands.”

And there things laid, and possibly might have stayed, until he came along to a lecture that I presented to the Petroleum Exploration Society of Great Britain in 1993 in an attempt to promote early exploration of the region.

Phipps rekindled his interest in the Islands and successfully applied for all the less attractive acreage around the periphery of the highly prized northern basin, knowing that no government in those days would lease its most attractive acreage to a newly formed and fledgling independent company set up, as his new vehicle Desire Petroleum was, to exploit just the Falklands opportunity.

With some persistence and forethought, Phipps also managed to take a small equity position with Lasmo in a couple of the more prized blocks at the time.

When the first six wells, drilled in 1998, proved a working oil and a separate gas petroleum system in the Cretaceous lacustrine rift basin to the north of the Islands, everyone thought that we were on the brink of exploration success.

The vagaries of the oil price, however – and its 1998 crash to less than $10 per barrel – led to the majors pulling out of the basin, leaving their small-equity partners, the likes of Desire Petroleum and Argos Resources, a local company started by a couple of fishing industry entrepreneurs, holding some of the prime acreage in the northern rift basin, with its proven world class lacustrine source rock.

New Targets for a New Century

Phipps and Desire Petroleum worked tirelessly with the British Geological Survey (BGS) and the regulators in the Falkland Islands Mineral Resources Department for the next decade to kick-start exploration again after the price crash.

In a paper written with a colleague from Shell in 2000, I identified how the basin’s best remaining potential lay adjacent to the eastern rift margin, and with Desire we set about trying to identify sand entry points, acquire new 3-D data and find an affordable deep water semi-sub to drill at an affordable price.

Desire’s 3-D data identified numerous basin margin targets, and in 2010 Desire eventually found a rig to drill in the region again. However, not before another entrepreneur – this time a complete industry outsider, and a lawyer to boot, but with other Falklands business interests – had convinced the regulator to licence to him the ex-Shell acreage, where Shell in 1988 had encountered live oil coating their logging tools as they pulled out of their second hole and, as it transpired, out of the basin itself (figure 3).

That entrepreneurial lawyer, Richard Visick, with an eye for a Shell walk-away and sensing a great opportunity, set up Rockhopper exploration, shot his own 3-D across the eastern basin margin and, following the promotional literature from the regulator’s department that suggested looking for basin margin sands, signed up to Desire’s drilling campaign and set about drilling the potential basin margin fans immediately to the east of Shell’s oil shows (figure 3).

The rest, as they say, is history, with the resulting Sea Lion discovery (STOIIP, about 1.2 billion barrels) currently being readied for development by Premier Oil.

Bold Steps Forward

Despite the industry’s reluctance to take a punt in the deeper water blocks east and south of the Islands in 1995, the government embarked on a successful open-door invitation in the early 2000s, and attracted two more gambling entrepreneurs into the area, stepping boldly where the majors feared to tread.

Borders and Southern Petroleum was set up by the Scottish mining millionaire Harry Dobson, who had trained as a farmer in his younger days, and developed a Falkland’s interest during a cruise ship visit there; the company went on to make the first deepwater discovery south of the Islands when it spudded the Darwin gas condensate field discovery well earlier this year.

Similarly, Falkland Oil and Gas Ltd, which was the brainchild of the late legendary Australian entrepreneur and share promoter Alan Burns – who had founded Hardman Resources previously in Perth and subsequently the Bahamas Petroleum Company – went on to claim the Loligo gas discovery this past September, on acreage that had recently been farmed into by the Italian giant Edison.

Entrepreneurs make a real difference, particularly those with an emotional attachment to a concept or a place.

And as in many places worldwide – where the majors went but gave up early – there have been rich pickings around the Falkland Islands for those small, aggressive companies willing to take a punt, believe in the geology, work closely with the regulator and invest in frontier exploration.

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Phil Richards is the petroleum manager at the British Geological Survey, and has been the principal technical adviser to the Falkland Islands government since 1992. He was instrumental in developing and marketing the framework for exploration activity around the Falklands and has been involved with all technical aspects of the exploration of the region, and the development of work programs, since then. He also worked extensively as a consultant on the UK Continental Shelf, in South America, the Caribbean, the USA and West Africa, and has published widely on basin analysis and exploration topics.

Historical Highlights

Hans Krause is an AAPG Honorary Member, Distinguished Service Award winner and former chair of the AAPG History of Petroleum Geology Committee.

A History-Based Series, Historical Highlights is an ongoing EXPLORER series that celebrates the "eureka" moments of petroleum geology, the rise of key concepts, the discoveries that made a difference, the perseverance and ingenuity of our colleagues – and/or their luck! – through stories that emphasize the anecdotes, the good yarns and the human interest side of our E&P profession. If you have such a story – and who doesn't? – and you'd like to share it with your fellow AAPG members, contact the editor.